Gay Lea Foods Co-Operative Ltd. v. Canada
T-2179-87
Jerome A.C.J.
10/2/94
6 pp.
Appeal from assessment disallowing deduction -- Issue plaintiff's right to claim inventory allowance deduction pursuant to Income Tax Act, s. 20(1)(gg) for 1981 taxation year -- Plaintiff, resident Canadian corporation, participated in price support programme (Plan B Programme) created by Canadian Dairy Commission -- Purpose of Programme to relieve seasonal strains in dairy industry by ensuring steady production, supply of butter -- Commission purchased butter from participating producers in times of high production and sold butter back to producers in times of lower production -- In 1981, Commission purchased butter produced by plaintiff pursuant to contract -- Plaintiff covenanted to repurchase butter no later than March 1982 -- Treated Plan B butter sold to Commission as inventory in financial statements for 1981 taxation year and recorded amounts received from Commission as liability -- Claimed inventory allowance deduction pursuant to s. 20(1)(gg) -- Plaintiff contending Programme essentially financing arrangement designed to encourage production and ensure adequate supply of butter during winter months -- Thus, wording of contract not correctly reflecting intentions of parties -- Also arguing fact recorded funds received from Commission as liability showed butter remained part of inventory -- Findings: purpose of s. 20(1)(gg) to help mitigate increased tax liability of businesses whose year-end inventories artificially over-valued by constant, substantial inflation -- Four pre-conditions to be met to successfully claim deduction -- As part of fourth requirement of holding property for sale in ordinary course of business, taxpayer must have property interest in inventory upon which allowance sought -- Contract clear and unequivocal title in Plan B butter passed from plaintiff to Commission -- Therefore, plaintiff not holding butter for sale -- Commission holding butter for re-sale to plaintiff -- Fact plaintiff treated butter sold to Commission as inventory, and amounts received by Commission for butter recorded as liability in financial statements, not sufficient to bring plaintiff within requirements of s. 20(1)(gg) -- Appeal dismissed -- Income Tax Act, S.C. 1970-71-72, c. 63, s. 20(1)(gg) (as enacted by S.C. 1977-78, c. 1, s. 14(1); 1986, c. 55, s. 5(1)).